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Republic to End Homeowners Policies in State : Insurance: The firm cites losses from Northridge quake in announcing plans to phase out of California.

August 30, 1994|THOMAS S. MULLIGAN | TIMES STAFF WRITER

Citing earthquake fears, Dallas-based Republic Insurance Group said it will "substantially withdraw" from California over the next two years and will stop writing new policies as of Sept. 9.

Larger insurers, such as State Farm Mutual Automobile Insurance Co., Allstate Insurance Co. and Farmers Insurance Group, have sharply pared back their writings of homeowners and earthquake policies in the wake of the Jan. 17 Northridge earthquake, but Republic apparently is the first sizable carrier to abandon the state entirely.

Through its three insurance units--Republic Insurance Co., Vanguard Insurance Co. and Blue Ridge Insurance Co.--Republic has about 200,000 policies in California, exclusively in homeowners, fire, earthquake and related lines of coverage. The group is the state's 11th- or 12th-largest homeowners insurer.

Republic, in a letter dated Friday, notified its approximately 600 California agents that their contracts with the company will be terminated as of Dec. 31. Applications for new coverage or for expanded coverage under existing policies will be accepted only until Sept. 9, the letter says.

After that, the company will write no new policies and will renew existing ones only when an agent is unable to find a replacement carrier, Robert Frierson, Republic assistant vice president, said Monday.

Republic said in a statement that the decision was "not an easy one" because the company has been writing homeowners insurance in California since 1906.

Republic's gross losses from the Northridge quake--the worst catastrophe in company history--were $120 million. After reinsurance payments, the net loss was $30 million, Frierson said.

The company decided to leave California because the cost of reinstating its reinsurance coverage would far exceed its $9.5 million in annual earthquake insurance premiums, Frierson said. A 1984 California law requires companies writing homeowners insurance to also offer earthquake coverage.

Frierson said Republic's action was not prompted by the California Supreme Court's Aug. 18 decision upholding regulations for Proposition 103, the 1988 insurance rate-rollback initiative. Some insurance industry representatives said the decision, which clears the way for up to $1 billion in rebates and affirms the insurance commissioner's broad authority over rates, would drive carriers out of the state.

Republic's withdrawal may heavily affect inner-city residents, who had a narrower choice of insurers even before the Northridge quake. Republic was one of the few large carriers aggressively writing homeowners coverage in the urban core, according to Javier F. Rodriquez, an independent broker in South Gate.

"This will cause a tremendous amount of problems with low-income people, people of color and people in underserved areas," Rodriguez said Monday. "It's going to be very difficult to replace this business with the same level of coverage at the same price."

Republic's action "only goes to harm policyholders in California," state Insurance Department spokeswoman Elena Stern said, adding that Insurance Commissioner John Garamendi has renewed his call for the Legislature--in the final two days of its session--to enact a moratorium against companies withdrawing from California or refusing to take new business.

State Farm, California's largest property insurer, said last week that it had modified its earlier-announced "managed growth" policy and would seek to reduce its overall homeowners and earthquake business by 4%.

By refusing to accept new customers, even when existing ones cancel their policies, other carriers may be shrinking their writings even more.

Earlier this summer, in what he called a stopgap measure, Garamendi ordered the California Fair Plan--the industry-sponsored high-risk insurance pool--to expand its homeowners and earthquake coverage statewide.

Cutting Their Losses

Here is a list of California's 10 largest homeowners insurers, ranked by market share for 1992, the latest year for which data is available. Together, the Top 10 account for just over 75% of all homeowners coverage written in California. Battered by an estimated $7 billion in insured losses from the Northridge earthquake, many carriers have tried to reduce their exposure in the event of future earthquakes by cutting back on the number of homeowners and quake policies they write in California.

% market Est. quake Insurer share loss (in millions) 1. State Farm 26.4% $1,300 2. Allstate 15.7 950 3. Farmers 13.5 1,000 4. CSAA 4.2 None* 5. Fireman's 3.5 Undisclosed Fund 6. USAA 3.2 257 7. Safeco 2.9 175 8. 20th 2.4 685 Century 9. Chubb 1.7 Unavailable 10. TIG 1.6 Unavailable

Action taken on Insurer homeowners insurance 1. State Farm Stopped offering 5% deductible, reducing overall business by 4% 2. Allstate Refusing new business 3. Farmers Raised deductible, refusing new business 4. CSAA Stopped offering 5% deductible 5. Fireman's No changes Fund 6. USAA Tightened guidelines, refusing some new business 7. Safeco Refusing new business 8. 20th Not renewing earthquake Century policies, refusing new business 9. Chubb No changes 10. TIG Refusing new business

* CSAA writes almost exclusively in Northern California

Sources: California Insurance Department, insurers

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